The Austrian groups of credit institutions “Erste Group Bank AG” (Erste Group) as well as “Raiffeisen Bank International AG” (RBI) have demonstrated in the latest stress test conducted by the European Banking Authority (EBA) that even following a hard stress scenario that they have higher Tier 1 capital ratios than was the case in the previous stress test conducted in 2016. This is the finding of the results of the 2018 stress test that was published today by EBA for the 48 most significant European groups of credit institutions.
Banking supervision in Austria advises further strengthening of capital base
“The results of the stress test have once again shown how important it was that Austrian banks have strengthened their capital base in recent years” commented Andreas Ittner, Vice Governor of the Oesterreichische Nationalbank (OeNB). The Austrian Financial Market Authority’s Executive Directors, Klaus Kumpfmüller and Helmut Ettl, explained further: “The results also show, however, that Austrian banks should not be allowed to rely purely on the strengthening of their capital base achieved in recent years, but instead must continue to make considerable efforts to reinforce their capital base.” The stress tests and the detailed disclosures of the results form a material contribution towards greater transparency in the European banking sector and therefore contribute significantly towards strengthening confidence in the EU financial markets.
Severe EBA Stress Scenarios
The underlying hypothetical stress scenario used in the EBA stress test was a severe one: The scenario simulates a dramatic drop in economic growth, adverse developments with regard to foreign exchange rates as well as housing prices, and – of particular relevance for Austrian banks – particularly pessimistic assumptions with regard to economic developments in most countries in the Central Eastern and South Eastern Europe (CESEE) region. Furthermore, such stress assumptions hit institutions with a strong deposits base harder than average.
It is however important to note that a stress test should not be allowed to be misinterpreted as being a forecast, but merely constitutes a simulation of the effects of a hypothetical shock-based crisis upon banks.
Erste and RBI on track
Both Erste Group and RBI have considerably improved their initial capital base in comparison with the levels held at the time of the 2016 Stress Test, in so doing however still being below average in comparison with Europe as a whole. This was also reflected in the results of the current stress test.
The effects of the adverse stress scenario on the capital base of just less than -4 percent are close to the average for all banks participating in the stress test. The hypothetical remaining Common Equity Tier 1 capital ratio (CET-1) at year-end 2020 in accordance with the adverse stress scenario would be 8.5 % (Erste Group) and 9.7 % (RBI) respectively, and for both banks are significantly higher than the result of the 2016 Stress Test. That they continue to be below the EU-wide average of all banks is based in particular on the fact that while the capital base has improved significantly, in international comparison the initial level remained considerably below that of the EU average.
Bank Austria was the third Austrian institution to be captured in the stress test, albeit indirectly through its Italian parent institution UniCredit.
The detailed results of the 2018 Stress Test may be found on the EBA Website.
The ECB Press Release and Frequently Asked Questions (FAQs) may be found at https://www.bankingsupervision.europa.eu/press/pr/date/2018/html/ssm.pr181102.en.html
and https://www.bankingsupervision.europa.eu/about/ssmexplained/html/stress_test_2018_FAQ.en.html
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-5106
+43/(0)676/882 49 516
Christian Gutlederer (OeNB Press Spokesperson)
(+43-1) 404 20-6900